Managing Different Types of Funds in the Tech Age: How It Can Benefit Your Business
Key Takeaways
- Green bonds are a type of “use-of-proceeds” bond where the proceeds are exclusively applied to eligible green projects.
- In almost all situations, MMFs provide a far better risk-adjusted return than leaving excess cash sitting in a regular bank account.
- Contemporary businesses now have access to a far larger pool of capital than ever before, and thanks to the interconnectivity the web has provided, it is more open and transparent.
Technology has incrementally opened up the ponce, relatively opaque financial world. By gaining access to money markets around the world, along with new services offering commission-free (or nominal fees) on certain transactions.
Businesses now have access to a plethora of ways to ensure their finances remain in the black, and they are able to continue funding operations. Moreover, new instruments have emerged that help organizations fund projects that relate directly to their ESG commitments, which has become necessary in the modern world.
This post will explore some of the ways that technology has made it easier for businesses to fund projects and grow their operations to new levels.
Green Bonds
Green bonds are becoming a renowned option for businesses looking to raise capital for environmental projects. As concerns about climate change grow, more companies are turning to the many types of green bonds available to fund initiatives that reduce their carbon footprints and can continue toward their ESG (environmental, social, and corporate governance) commitments.
Green bonds are a type of “use-of-proceeds” bond where the proceeds are exclusively applied to eligible green projects. Some examples include renewable energy, pollution, and waste prevention initiatives, and even upgrading existing buildings to meet certain sustainability measures.
As climate finance grows, experts believe green bonds will continue gaining popularity as a mainstream corporate financing tool. It’s a way for businesses to address sustainability whereas also raising capital for activities shareholders care deeply about.
Money Market Fund
This next option is more about increasing company cash stockpiles rather than using them for a particular purpose. Nonetheless, money market funds (MMF) have long been a popular choice for businesses to park their short-term cash in such a way that it accrues in value. They are a particularly valuable technique to offset inflation and, as such, tend to be used more in high inflationary situations.
Money market funds invest in safe, low-risk securities like Treasury bills and aim to maintain a stable net asset value of $1 per share. They’re an attractive option for companies seeking to preserve capital when generating some interest income. With many money market funds offering daily liquidity, it’s an easy way for businesses to keep cash ready when short-term needs arise.
In almost all situations, MMFs provide a far better risk-adjusted return than leaving excess cash sitting in a regular bank account. A regular bank account earns little to no interest (or even declines in value thanks to the sorts of inflation we are seeing today).
The funds also provide more diversification than individual securities since they invest in various money market instruments. And with many large fund companies automatically sweeping available cash from operating accounts into money market funds overnight, it’s a hands-off way to manage short-term cash flow efficiently.
SBA Loans
Small Business Administration (SBA) loans have long been a staple resource for small businesses seeking an affordable way to access capital.
Administered by the US Small Business Administration, these loans aim to promote entrepreneurship and help smaller options grow. There are several types of SBA loans available for various needs like
- Equipment purchases
- Real estate acquisitions
- General working capital
A major draw is that many SBA loans offer low, fixed interest rates that are often below what small businesses could otherwise qualify for if they went a more conventional route. The fixed-rate also allows them to budget their repayments more effectively and avoid dealing with issues that could cause them financial stress down the line. In essence, the SBA also provides loan guarantees to incentivize participating lenders to take on less risky small business borrowers.
Venture Capital
You have probably heard about venture capital on the news since it is progressively used in businesses that operate in high-tech industries (which also happen to be all the rage nowadays).
Venture capital comes from firms and wealth investment pools willing to take on much higher risks than banks in exchange for potentially huge returns. They invest in companies still in the early development stages that may not yet have positive cash flows or clear paths to profitability. This includes seed, early-stage, expansion, and later-stage funding rounds.
Whereas venture capital comes with higher stakes than the other options on this list, it has helped birth many globally significant companies by providing a highly liquid capital injection they needed to develop groundbreaking technologies, products, and business models.
Crowdfunding
This final type of funding has only recently emerged as an alternative source of capital for businesses of all sizes but is aimed chiefly at fledgling enterprises looking to get off the ground.
By leveraging online platforms, companies can tap into many individual investors to fund projects or ventures. This gives entrepreneurs access to financing outside the traditional avenues of bank loans, venture capital, or angel investing.
Contemporary businesses now have access to a far larger pool of capital than ever before, and thanks to the interconnectivity the web has provided, it is more open and transparent.
The opportunities are endless, from green bonds to help a company in its journey toward sustainability to MMFs that enable them to park short-term cash piles in an inflation-busting account.
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